News that the FBI won’t pursue this investigation has left Clinton in the clear and we are seeing a major risk-on rally. Above all it shows just what markets really think of the two candidates. Clinton is clearly the continuity candidate – positive for equities and the US dollar. Trump is very much a risk-off trade – positive for havens like gold and the yen.

Risk On

Markets have effectively said this latest email investigation never happened. Gold has been smashed back down to $1,285, its lowest since Comey first alerted Congress to the FBI’s new investigation – a clear indication that the markets perceive this latest development as good for the Clinton campaign.

Global stock indices were broadly higher on Monday (November 7th) as the US dollar gained across the board. Equity markets were looking at gains of at least 1% on the day. The S&P 500 looked ready to end a nine-day losing streak.

The Mexican peso, a key election proxy trade, rose firmly.

But while markets have decided the latest FBI probe effectively didn’t happen, voters may be inclined to think differently and there is a hint of complacency in this recovery. We now are seeing a Clinton win priced more firmly into the markets and a Trump could likely spark a significant sell-off.

UK Stocks

The FTSE opened up 1.5% on Monday as money came flooding back into stocks. But for the blue chip index there are two things at work. Part of this is a broader rally in equities – European stocks are up and US stock futures point to a sharply higher open for Wall Street and an end to nine-straight days of losses for the S&P 500.

But we’ve also got to look at the fall in sterling. Driving the FTSE 100 higher today are the big foreign-earners like drug companies, miners, oil producers and HSBC – the bank makes up over 5% of the FTSE 100 by index weight so today’s 4% rise is helping the blue chip index in no small way.

Cable is down below $1.24 as the rising dollar erodes all of the gains enjoyed by the pound since the High Court ruling on Article 50 on Thursday. The dollar index has jumped and the pound is now trading at its lowest since last Thursday, when it climbed above $1.25.

In fact the big gains for the FTSE today are largely part of the short-sterling, long-stocks story since Brexit. Following the referendum the pair moves inversely so when we are talking about what the US election means for UK stocks we really have to consider what the result means for the dollar and the impact on the pound.

Brexit Echos

We saw much of the same rally for riskier assets in the week leading up to Britain’s EU referendum in June. As polls and betting markets showed a healthy lead for Remain, the pound and FTSE firmed on the belief there would be no Brexit. That rally made the selloff after the result all the more seismic.

Could we see something similar with the US election?

US stocks are pretty vulnerable to the election result, as the recent price action indicates. But despite the rally on Monday , Wall Street remains on course for a key technical indicator that could herald a sharp downturn.

The 50-day moving average is converging on the 200-day – precipitous of the so-called Death Cross that could herald some significant short-term momentum south. If Trump wins and stocks are sold off, that level could be breached and there is a long way down – 10% correction in the index would not be out of the question.

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